Taking A Back-To-Basics Approach To Payroll Innovation

Payroll has, perhaps to the surprise of some, emerged as a popular focus of B2B FinTech innovators looking to disrupt the way companies manage funds and issue payments.

It’s a function that can serve multiple purposes, including driving talent retention, and it’s a workflow with many touch points within the enterprise, including finance and payments, human resources, and tax and compliance.

Today, there is a flurry of innovation exploring the opportunity to shake up the status quo of the bi-weekly paycheck. New features like early or on-demand access to earned wages, or instant payouts via real-time bank transfers or push-to-card transactions, are unlocking greater value for employers. The added benefit of digital-first tools can also introduce greater efficiencies and automation in workflows that are traditionally opaque and time consuming.

But as with so many corporate-focused technological innovations, payroll’s evolution is more of a slow burn than an explosion. According to HR Path North American Partner Wim De Smet, corporate resistance to change, particularly among the largest firms, can be a difficult barrier to overcome.

In a conversation with PYMNTS, De Smet discussed how that internal resistance can limit the impact of payroll innovation and prevent organizations from addressing the pains of manual payroll.

Compounded Challenges

With international hiring now easier than ever, and remote working remaining at least a partially permanent fixture with many employers, organizations have plenty of payroll challenges to face in light of market changes.

De Smet highlighted another market trend related to the global coronavirus crisis that has compounded those complexities for many firms.

“One of the major effects of the pandemic is a significant increase in mergers and acquisitions,” he said.

That combined with the ever-increasing pressure of compliance (which changes from jurisdiction to jurisdiction) has turned the administrative headache of payroll into a nightmare for some companies.

In this context, it’s no wonder that not every business is prioritizing adopting more cutting-edge payroll solutions that can optimize the way their employees receive compensation. Instead, many firms are too busy navigating the daily friction of merely getting ready for payday.

Resistance To Change

In addition to the growing number of payroll solution providers that look to offer organizations these disruptive solutions, there are more technologies available on the market today vowing to solve firms’ biggest payroll challenges, from international employee payouts, to compliance, to data entry and integration.

And yet, said De Smet, many enterprises continue to rely on in-house talent and manual strategies to run payroll.

“There is a high resistance to change within organizations,” he said. “A lot of times, payroll is a part of finance, and finance is very resistant to change.”

Describing this issue as “one of the most sensitive topics” in the world of HR today, this reluctance to migrate away from legacy payroll strategies is harming firms in the long run. De Smet said that he often discovered businesses that, when they finally decide to implement an outsourced and automated payroll solution, will uncover errors that have remained undetected in their payroll workflows for years, with potentially expensive consequences.

Outsourced Support

The practice of outsourcing payroll is far from a new complex, but De Smet noted that many major organizations will still hesitate to divest control of their payroll operations to a third party. Again, it’s that hesitation to embrace change that can keep an enterprise on those inefficient and costly methods to manage the function, while budgetary restraints can also be a significant barrier.

What De Smet said many businesses fail to recognize is that the outsourcing model has evolved beyond the traditional options of business process outsourcing, in which the entire HR and payroll organization is taken over by a third party, or the payroll outsourcing model.

Today, there is a wide spectrum of outsourcing models, including hosted payroll services and managed payroll services, that can deliver a more flexible and affordable way to migrate the payroll burden to a trusted partner. With more payroll technology firms stepping into the market, De Smet said it is imperative that organizations choose firms with a proven track record of compliance.

Embracing solutions that can automate and mitigate risk well before any paychecks are ever sent out means giving a firm the ability to go back to basics with its payroll strategy. Only then will the payroll technology landscape be able to ease the corporate community into a future of more disruptive features and services.

“It’s going to take a little bit of time,” noted De Smet, adding that the pandemic has certainly accelerated change in the landscape. “It’s definitely on a much faster track than it ever has been before. Compliance rules have become a lot more severe and elaborate than they ever were before.”